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Wednesday, March 1, 2017

An Important Discussion on the Inflows of Foreign Direct Investment (FDI) in The Bahamas

By Professor Gilbert Morris:

AN IMPORTANT DISCUSSION HAS EMERGED SURROUNDING INFLOWS OF FDI IN THE
BAHAMAS, lead by our own young prince Professor Peter Blair, moderated
by our own Lester R Cox - including bright Bahamian thinkers like Lynden R. Nairn & Hubert Edwards and others. I make this small contribution for which some friends have asked a repost.

"I think there has been some misunderstanding of Foreign Direct Investment (FDI) and some people have misread what Professor Peter Blair has said in his recent presentation.

First, look specifically at the top four nations receiving FDI INFLOWS
(EU, China Hong Kong & USA), now look at their growth rates: The EU
with the highest FDI inflows has the lowest growth rate. China, with the
highest growth rate has the lowest FDI of the top four nations.

Of
course these are relative & constitutive issues and limiting
factors in any comparison; but Papua New Guinea, the Congo, Ethiopia and
Turkmenistan enjoy the highest growth rates in the world; but with the
exception of Ethiopia, investors are not flocking there.

Yet,
neither growth rates nor FDI inflows indicate, NECESSARILY, the actual
prosperity which Bahamians have been promised and for which they are
waiting.

Let's try a thought experiment: Imagine, say INFOSYS - the
Indian tech giant - decided to invest $100 billion in building 50
industrial grade Data Centres in the Bahamas. Suppose they required
specialists to build and once built the centres required only 50 people
(all foreigners with exotic high tech post graduate qualifications to
manage them), with a maintenance crew of 20, including 10 Bahamians. The
government would register that as $100 billion in FDI inflows, but its
"dead value" and would do nothing to generate the sort of growth that
produces PROSPERITY.

There would be no transactional nexus, from which local consumption would be generated no matter how much money it made.

Let's try another thought experiment for the opposite case: Imagine a
former Green Beret, expert in coding and information systems &
network security, gets with 10 friends, retires to the Bahamas. Imagine
that he and his friends teach 300 young Bahamians coding, encryption and
mathematical logic on weekends and evenings for 3 years. Imagine that
this leads to the development of 50 high tech web security firms and
they gain $300 million in electronic security contracts for Banking.

This would not be classified as FDI, but would impact our economic
growth rate and power local consumption, generating that prosperity,
which Bahamians desire rightly.

What Professor Blair showed was not
whether FDI was good or bad or even necessary. HERE IS WHAT HE
DEMONSTRATED BRILLIANTLY: a.That our having leaned on FDI inflows in
disproportion to development for instance, has resulted in nebulous
quantifiable advantages; b. That we have no means of measuring the
efficiency of FDI as a driver of growth; and c. Therefore we have been
lurching to & fro, using FDI inflows to cover a multitude of sins,
operating without a strategy.